"You've probably heard pundits say that this or that stock has a gigantic percentage of its market capitalization in cash, and therefore it's cheap and must be bought," said Jim Cramer.
Don't believe them.
"When it comes to picking stocks, cash is not always king. In fact, if you buy a stock just because it's sitting on a mountain of cash, you could end up in a lackluster stock and miss out elsewhere," explained the "Mad Money" host.
Skeptical? Cramer said look no further than Cisco and Oracle According to published reports, in 2013 Cisco had as much as $9 per share in cash while Oracle had well over $8 per share.
"People were lulled into buying their stocks simply because they had so much cash on their books. "
Yet, by early December, Oracle had returned about 3% while Cisco has returned about 6% for the calendar year.
Investors could have done much better elsewhere in the market, by putting money behind themes such as the energy revolution underway in North America or the return to profitability in the bank sector.
Over the same time horizon, energy developer and Cramer fave EOG resources had gained about 30% with less than $5 of cash per share while another Cramer stock, KeyCorp, had gained more than 50% with less than $3 of cash per share.
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Now make no mistake, Cramer is not saying cash on the balance sheet is a bad thing.
He simply doesn't want you to conclude that you have a good stock because of it. In the case of Cisco and Oracle, hitting the buy button due to all the cash on the balance sheet turned out to be a relatively unprofitable investment decision for a period of 11 months when compared to other stocks.
The preceding insights are discussed in far greater detail in Jim Cramer's book Get Rich Carefully.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? madmoney@cnbc.com
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